This article is the new installment of Sustainability Analysiswritten by members of the Sustainability Committee of CFA Society Spain for elEconomista.es
More than 50,000 companies around the world, mainly European, will be obliged, as of January 1, 2025 – and in different periods – to publish annual sustainability reports, in response to the requirements of the European Directive on Corporate Sustainability Information (CSRD for its acronym in English). When the directive is carefully evaluated, We observe many differences compared to the Non-Financial Information Law, currently in force in Spain. The fundamental ones are double materiality and the value chain, the standards to be applied, digital labeling and the sanctioning and supervision regime.
Companies are really worried about how to comply with the directive and how to present their first report.. However, the information to be disclosed is not intended to be checked off a to-do list in a few months or even a couple of years. It is designed to promote significant, long-term changes in companies’ business models. The companies that recognize this fact will be the ones that stand out in a sustainable future. IV elEconomista ESG Forum: SMEs will face the greatest challenges with the new regulations.
The directive establishes that organizations must determine which sustainability issues entail relevant risks, opportunities and impacts through what is known as “double materiality” and on the issues that appear as relevant the company must report in terms of governance, strategy, performance. and risk and opportunity management. In this way, whether companies have to report that there is no underlying strategy that shows that it adequately manages this matter, this creates pressure so that the strategy is designed and measures and actions are implemented.
“Meeting the new requirements will be difficult, but it will have tangible benefits”
The expected impact of the directive involves relevant changes at the level of strategy, governance, risk management and due diligence. Anyone who does not take advantage of the opportunity to refocus and transform their business will not achieve the expected effect on investors and other interest groups, which the regulator is trying to provoke with the directive. In fact, PwC’s survey of more than 500 managers, the Global CSRD Survey 2024, highlights the number of respondents who foresee tangible benefits derived from the application of the directive. More than half of those surveyed (51%) believe that it will greatly improve the environmental performance of companies, 49% that it will strengthen ties with their stakeholders, and 48% that it will help better management of the risks. Additionally, 28% expect it to help them boost revenue and 26% save costs. The companies that have the greatest expectations that the CSRD will have economic effects are those that have their reporting obligations closest. This indicates that some managers are moving away from a simple compliance mindset to focus on value creation. Financing environmental sustainability: a great challenge of commitment and transparency.
In this regard, and in order to generate opportunities for value creation in companies, it is advisable to work at an incipient stage on the reliability of data and information. It is essential to have a repository of reliable informationleveraged on technology and robust sustainability information control systems, to facilitate decision making. Achieving this may involve a significant initial investment in technology (ERPs) and AI solutions, but these are initial investments that will later facilitate the transition. After this, it is necessary, on the one hand, the push from the Boards of Directors and senior management and, on the other, the coordination of all areas of the organization, working under the same objective, and avoiding silos. Sustainability teams cannot identify value creation opportunities without having the support of other corporate departments (finance, communication, purchasing…) or business units, which is where these transformation opportunities are really found. Under this premise it will be much easier to evaluate the company’s starting situation in relation to the requirements of the CSRD, the establishment of objectives and action plans and their integration into the business strategy.
In short, Meeting the EU’s new sustainability reporting requirements will be difficult. However, doing it correctly will bring tangible benefits to companies. It is, therefore, better to focus on the opportunities derived from the CSRD directive than on the risks and treat it as a management and transformation directive, rather than a mere directive. compliance. The first year of application we may focus on compliance with minimums, but after this first exercise, companies must evaluate how they can improve and transition their companies towards more sustainable production models. The ESRS standards (European Sustainability Reporting Standards) give many clues on how to reflect on sustainability and, if properly applied, will help in this transformation process. In short, it is not enough to comply, it is time to transform business models.
Pablo Bascones Ilundáin is a member of the Sustainability Committee of CFA Society Spain, as well as a partner at PwC, sustainability and climate change leader.
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